tv On the Money CNBC August 31, 2014 7:30pm-8:01pm EDT
hi, everyone, welcome to "on the money." i'm sue herrera in for becky quick. a steamy august for stocks, but the next move may be an ugly one. what you can do to protect your money. keeping americans working, our conversations with america's labor secretary. the controversial device that stops an airline seat from reclining and started a fight on board a plane. the man who defended the knee defender. and using big knowledge to help small businesses. newly minted nba's working in unexpected places. on the money, starts right now.
>> here's a look at what's making news as we head into a new week, on the money. america's economy is picking up steam and glrowing faster than first thought. the first look at the gross domestic product shows it grew at 4.4% better than economists expected. the gdp is the broadest measure of the size and strength of the u.s. economy. the s&p closed above the 2,000 mark for the first time ever, partly on hopes there will be more stimulus by the european central bank. the nasdaq hit new 14 and a half year highs as well. while the dow managed to stay above 17,000. the markets rose on friday. am sazon is starting to twitch. twitch is a live streaming video
platform. tim horton's at least in part to take advantage of canadian tax laws and lower its tax bill. >> well the markets keep bubbling up, interest rates keep tricking down and the summer stock market has been a hot one. but where do we go from here? joining me now are david kelly, the chief global strategist, and jim paulson, chief investment strategist at wells capital management. the markets have had kind of a slow meltup if you will this summer, setting records right and left. do you think they have already reached their highs for the year? why is that? >> yeah, i think we are pretty close to the highs, sue. i think the question that investors need to ask is can we now, i think the economy is up shifted to around 3% growth and can we grow at 3% with the unemployment rate soon heading
into the 5s and -- can we do that without any investment or interest rate consequence? if we can, it's going to melt up. i think we're going to start to see some increased cost pressure, a little anxiety around the fed's exit strategy and that could cause some turbulence in the stock market before the end of the year. >> as i mentioned, interest rates have been going down and the stock market and the bond market seem to be telling different stories. >> i don't think they really are telling different stories. what we have here is economic gain without interest rate pain. the reason for this is it really is a global bond market. ten-year german bongz -- that makes a u.s. bond at about 240 look pretty good. the u.s. stock market can probably go up a bit while it's going on.
because the bond market is not going to look that attractive to investors as interest rates begin to move up. cash still won't look attractive to investors even once the fed begins to raise rates, sometimes next year. i still think the money will naturally flow towards the equity market, unless there's some shelf that threatens to redirect earnings in the economy. >> did you expect to see the 10-year bond, given the fed, given the normalization of qe that seems to be looming large ahead of us. >> i don't. i mean, i think it's a global bond market, as david says, until we get a bad inflation number in the united states. and then suddenly, it's a domestic bond market and there's manic for the exits. i think the bond market could move very quickly. last year, for example, sue, we were at 1.6% in may or something like that, within two months, we were at 2.6%. and that's not uncommon, you get a big move in bond yields
quickly, because sentiment changes on wall street. we're just one bad wage number away from an employment report. and i agree that the market is not that vulnerable to higher yields, but they are vulnerable if the higher yeelgds are going up because of the inflation -- >> their version of qe might end any time soon? >> well, i think europe is slowly recovering, i know we have had some bad economic numbers over the summer. but once an economy begins to recover, and once you take off the stress of the sovereign debt problem, and the dramatic austerity, i do think this expansion will continue, i think we'll see unemployment gradually come downing. but i think the european central bank is hurting european economy
not helping now. i actually kind of like the targeted long-term refinancing operations that mario draghi has announced. it's the quality -- that's holding the banking system in check. >> all right, so jim, what are you telling your investors right now? >> well, i'm still longer term. i think there's a lot more up side in this stock market yet sue because i think the recovery is going to last a lot longer yet, but i do think we might have a pullback, maybe 10% over the naerks 12 months. what i would say is stay overweighted towards equity. because as david said, where are you going, to bonds? or cash which yields you nothing. but i would diversify in different ways against what might happen here. and one of them is to go to a part of the world that doesn't have the same policy schedule we have here. europe is going to tighten.
i would go to those markets and major weight them. i would also go to offshore markets dollar resource based, canada and australia, that could do very well if we have a miniinflation panic in the united states and i think the emerging world has bottomed, the emerging stock market certainly has in march, it's been outperforming since, but right now, i try to be allocated away from the united states market. >> all right, thank you both, jim, david, always a pleasure. >> thank you. >> coming up next, we're on the money. the big job of keeping americans working, labor secretary john perez joins me on unemployment, bright spots and why he thinks the department of labor is a great matchmaker. later, two passengers argue and are then kicked off a plane over this device. what it is, and how it might affect your next travel experience. we'll find out, as we go to a break, a look at how the stock market ended the week.
secretary perez, thanks for being here and spending time with us, we appreciate it. as we mentioned, the u.s. economy has gained back the number of jobs we lost during the recession, slowly but surely. but the question i hear from some economists is the quality of the jobs. is it comparable to what we saw eight years ago? >> we have had 58 consecutive months of private sector growth.
if you look at the jobs that have come back, those are some of the highest paying jobs, accountants, architects, et cetera. so what we have seen is that the jobs at the high end have come back, jobs at the lower end of the wage scale tend to be the first to go and the first to come back. where we have a lot of work to do is in those middle income jobs, those middle school jobs, and that's why we're so focused on expanding apprenticeship opportunities, expanding students to access skills that are in high demand. >> as you know, the perception is almost everything, and the perception is, even if it's not correct, the perception is that the jobs that were not created were in that lower wage sector. what you're telling us is that we have actually seen substantial growth in the higher wage area. >> absolutely, again, over the past year, the biggest growth area?
jobs, 65,000, you look at manufacturing, manufacturing is in its biggest growth since the mid 90s. the average person on an assembly line is working 42 hours a week roughly, the largest producer of oil and natural gas in the world is now the united states. and what we do in the department of labor, is we're like match.com. we're matching job seekers, with employers who want to grow their business and we're helping more and more people punch their ticket to the middle class. and america works best when we feel the full team. and that's why we want to make sure that everybody has that chance to punch their ticket. >> i have interviewed a number of labor secretaries over the years, first time i have ever heard the labor market match.com. one of the big issues that summer has been the conversation and debate, really, over corporate inversions, where companies leave the u.s. and they headquarter in other
countries that have lower tax rates, lower corporate tax rates. what does that do to the american workforce right now? does it as many claim, lose jobs to overseas entities or do you think that basically it's good corporate governance if you're a publicly held company to get the lowest tax rate possible. >> i think it's unfair that it's so exciting. it's been interesting to watch the reaction to burger king, across an it logical spectrum and people have choices. i was watching a number of conservative commentators as well as the progressive side saying people are going to vote with their feet as they should. i spoke to a fortune 50 ceo a while ago, who said something that really stuck in my mind, who said we need to be focused in corporate america on the
long-term. too many corporate executives focus on the here and now. this person told me about a renegade shareholder who said, i would rather be rich than right. and that really stuck with me. i have talked to so many ceos who want to be right and you can be right and yooiu can be quite rich as well. and you can take care of your workers and put out a good product. >> there are millions of american who is have been out of work six months or longer, long-term unemployed. so given what we see at this point, nearly six years after the financial crisis, what remedies are still available to address the long-term unemployed? >> they are incredibly talented, they're incredibly dogged. they want to get back in, one person told me last week, you know, i got no quit in me. and we can't quit on them. the best thing we can do to help
the long-term unemployed, is to pick up the pace in growth. the economy is moving in the right direction, but when you do transportation investments that grow jobs, when you pass immigration reform u when thaw raise minimum wage that stimulates consumption, these are things that will put upward pressure on unemployment in a good direction. >> mr. secretary, i know you have a busy schedule, so we'll leaf it on that optimistic note. up next, we're "on the money" seat back or sit up straight. the device that stops someone from reclining their seat on an airplane. is it inconsider rat or every passenger's right. how america's brightest minds plan to reinvigorate small businesses everywhere. black
. a knee defender. who's behind the device causing so much controversy. here's it's creator. were you surprised that it had come to this with passengers fighting over those reclining seats? >> i know there's been a problem for a long time. when i sit down in a seat, my knees are already touching the seat in front of me.
and it's been a problem. but the product's been on the market for 11 years. and this is the first time it's happened. and what happened shouldn't have happened. >> some airlines like spirit don't have reclining seats at all. what do you think about that? is buying that seat, is being able to put that seat back and recline it an ethical issue? >> it's a courtesy issue, if someone's sitting behind you, and the person's legs are already there. then the airline is like trying to do what they did and the producers, they sell me the space for my leg, and then they sell the space to somebody else to recline. but obviously the reclined seat and my legs can't be there at the same time. >> you mentioned the fact that you created the device about 11 years ago. i assume the fact that you have been on cramped flights kind of gave you the idea, but can you explain to us how this device
works? >> i have these two little pieces of plastic, and you bring the tray table down in front of you when you're in coach, and you put these on the arms of the tray table, and then you just slide them down to the seat in front of you and that will stop the recline, or you slide it down partway and that will stop some of the recline, depending on how much space there is before the seat would hit your knees. >> right. you have never really aggressively advertised the knee defender since inventing it, i should say. i would assume, after this incident, it has really helped your business, or at least you have had more people go to the website? >> there's certainly 185,000 people showed up at our website the other day and, yes, we don't advertise, i think we spent $1.25 on google ads several years ago to see what it was like. but parade magazine did an
article i think 10 years ago. >> the faa has not banned the device. some airlines have policies against using those types of devices. if the faa does step in, what does that do to your business? >> the faa is the final arbiter, but the faa only gets involved when there's a safety issue. and this is not a safety issue. >> thanks very much ira, thanks very much for spending time was. up next "on the money" a look at the week ahead. street smarts versus book smarts what happens when the leaders of the nba meet with schools. i take prilosec otc each morning for my frequent heartburn. because it gives me zero heartburn... annc: prilosec otc the number one doctor recommend
here's the story coming up that may have impacted your money this week, on monday, the markets are closed in observance of labor day, tuesday we'll see how manufacturing is faring with the ism index. wednesday the federal reserve will release the beige book which compiles anecdotal information about the economy. also on wednesday, we'll get motor vehicle sales for august. on thursday, the european central bank meets and there is speculation that they may launch a new stimulus program. and on friday, we'll get the big economic number of the week, the jobs report. nbas from the nation's best business schools are passing up internships at elite schools like mckenzie and goldman-sachs, to help out small businesses.
why are these future leaders eager to work with this nonprofit? joining me now to explain the appeal is founder and ceo casey jerald and a participant in the program, red ants pants owner sarah calhoun. casey and sarah, good to see you here. nbas across america baseball enables nba students and recent grads to employ what they have learned in small businesses in various cities. it's a great idea, but how did it come about? >> to be very honest with you, nbas across america started with three classmates and i at harvard business school about a year and a half ago, not as an idea for an organization, but for our lives, can we use our degrees, our education and -- that question took us 8,000 miles across the country where we spent eight weeks in eight cities working with visionary entrepreneurs -- and folks like
sarah calhoun are chief among them. so right now what we have found is that the real question we're asking is could we create a country where every entrepreneur in every community, not just the chosen few have the resources. >> i was going to ask you, how did you get by into this. but now that i can you, you're such a good salesperson of this concept, that i'm sure it was not as hard as you thought it was going to be to get by them? >> i would not even say a salesperson for the concept. we around the country are asking, will the american dream survive another generation? and if you look at the newspapers or if you watch some television programs, not yours, you might think it won't. then you go meet entrepreneurs like sarah and you realize that our best hope is to double down on them. >> sarah, how has the experience been? it sounds like it's just been an amazing experience overall. >> it truly is, and very, very valuable from both the personal
level and from a business perspective and when they first called last year, i had my doubts, i will say that, it was very much a new program last spraining, but i decided to be one of the pilot entrepreneurs. just being able to have four new sets of eyes on your business is, yeah -- >> what kind of -- what kind of things have you learned. how valuable has it been to your business? >> it's fantastic. i don't have metrics per se, but knowing that there's a team of really bright, well trained stuchb students out there and business leaders that can look at my operations and say let's look at this, this, and this because when you're in the weeds in the business, it's hard to see. >> that's something that the nbas learn, compared to corporate america where you have layers and layers of people to analyze and tdo reports on, smal
business is very difficult. >> small business owners tell us that i spend so much time working in the business, i can't work on the business. this is not a condition sulting project, this is not just going out and using brain works and mackenzie power point decks to help businesses. this is a human exercise and trust is the most important currency, so while ore teams are on the ground for a week, we're in business for a lifetime. >> thank you for spending time with us, sarah and casey. >> that does it for the show today, i'm sue herrera in for becky quick. keep it right here "on the money." have a great day. ♪ the last four hours have seen... one child fail to get to the air sickness bag in time. another left his shoes on the plane... his shoes! and a third simply doesn't want to be here.
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